Technical Indicators

Technical indicators are tools used by technicians to determine trends and possible entry and exit points of a stock. These indicators are based on formulas or derivatives of historical price action as the input data of the stock: opening price, closing price, highest price, lowest price, volume, etc. By collating all the historical price action of the stock, a graph can be formed to indicate the possible future trend or price of the stock. There are two types of technical indicators used by technicians

1. Leading indicators

These are technical indicators that lead the price action of the stock and most of them gauge the momentum of the stock to determine its possible future price movements. This type of indicator is reliable in determining entry and exit points in a sideways market.

2. Lagging indicators

These are technical indicators that follow the price action of the stock and is used to show the strength of a trend. This type of indicator is reliable in a trending market.

There are numerous kinds of leading indicators and lagging indicators developed over the years. The beauty with these indicators is that they complement well with other Technical Analyses such as Candlestick Charting, Pivot Trading, Harmonics, etc.